CDs vs Savings Accounts Compared

Saving money is a good thing, but it’s important to find the right kind of account for your cash. Both savings accounts and certificates of deposit (CDs) can be a safe spot to keep your money, but they have differences. A savings account can be more accessible, meaning you can typically withdraw funds at will, while with a CD, you are supposed to let your money sit for an agreed-upon period of time. Also, interest rates may vary. CDs typically offer higher rates than traditional savings accounts do. However, high-yield savings accounts may offer rates close to (or possibly even exceeding) those of CDs.

Depending on your needs and preferences, you may discover that one option is a better fit for you. Read on for details on what these accounts offer and how they differ. Once you know the pros and cons of each, you will likely be better prepared to make a decision.

Certificate of Deposit (CD) vs HYSA Savings Accounts

A certificate of deposit (CD) and savings account are both vehicles that can help you grow your money thanks to interest earned. A key difference, however, is that a savings account is more accessible, while, with a CD, you agree to keep the funds on deposit for a period of time. You may, however, be rewarded with a higher interest rate for doing so.

That said, high-yield savings accounts can offer competitive interest rates vs. CDs and provide more flexibility. You can withdraw funds as needed, without being hit with penalties.

To understand more about the difference between a CD and a savings account, it’s a good idea to first learn in depth how each type of account works.

What Is a Certificate of Deposit (CD)?

A certificate of deposit (CD) is a specific type of savings account that pays interest. You agree to keep the money on deposit for a specific term, which can range from a few months to several years, and you are promised a specific interest rate (usually, but not always, a fixed rate). CDs are also known as time deposits for this reason. A couple of points to note:

•   Generally, the longer the term you choose, the higher the interest rate may be. You may also find a promotional CD with a higher than usual rate.

•   You may find some variable-rate CDs offered. With these, the interest can fluctuate with the market.

•   Typically, you will pay a penalty if you withdraw funds before the end of the term. There are some no penalty CDs on the market that don’t involve a penalty for pulling money out early. They may, however, offer lower interest rates.

CDs are considered to be a very safe savings option, provided they are held at a bank with Federal Deposit Insurance Corporation (FDIC) insurance. If so, you will be covered up to $250,000 per depositor, per account category, per insured institution. That means even in the very rare instance of the bank failing, you wouldn’t lose funds up to that amount. (If you open a CD at a credit union, you would likely be insured by the National Credit Union Administration, or NCUA, in a similar way.)

How Does a CD Work?

Here’s how a certificate of deposit works:

•   When you open a CD, you typically commit to leaving the money in the account for a set period of time such as six months or three years. In exchange for locking up your funds in this way, the bank issuing the CD will pay out a certain amount of interest.

•   Many financial institutions give account holders the option to collect interest at intervals during the term of the CD or at the end of the term.

•   However, if you withdraw funds from the CD before its term is over (also known as its maturation date), you will likely be charged a penalty.

•   When the agreed upon period of time is over, you can get your original deposit back, along with the interest earned and not yet paid out, or you can roll it over into a new CD.

What Is an HYSA Savings Account?

A savings account, which you can open at a bank, credit union, or other financial institution, is a place where you can save money without locking it away for an extended period of time. Opt for a high-yield savings account to help your money grow even faster.

•   A savings account is a good fit for money you want to protect and grow while still being able to access it — say, for an emergency fund or a down payment for a car you plan to buy in the coming months.

•   The funds in your account are accessible when you want them, without a penalty, though some financial institutions do limit the number of transactions per month.

•   Similar to CDs, savings accounts generate interest, but traditional savings accounts may offer a lower rate. A high-yield savings account, or HYSA (most often found at online banks), can come with a higher interest rate, sometimes a multiple of what traditional accounts offer. For example, as of September 2024, the average interest rate for traditional savings accounts was 0.46% and the rate for high-yield savings accounts could be several times that.

Most savings accounts at major banks offer FDIC insurance. If the savings account is held at a credit union instead of a bank, then the NCUA vs FDIC insures the money with similar guidelines.

How Does an HYSA Savings Account Work?

High-yield savings accounts, like traditional savings accounts, work by putting money in your account, where it earns interest. You can then withdraw funds as needed (though some financial institutions may put a limit on how many transactions they allow per month). The difference is, however, that you’ll earn a more robust interest rate.

Someone might put money in savings to:

•   Earn interest and help their money grow

•   Save money for a short-term financial goal

•   Create an emergency fund

•   Keep their money safe vs. having cash at home

•   Separate the money they want to save from the money they want to spend

Recommended: Savings Account Calculator

3 Similarities Between a CD and HYSA Savings Account

If you’ve ever thought of a CD and a savings account being almost the same thing, there’s a good reason why: There are a few similarities between them.

1. Insured

Typically, a CD or savings account is insured by either the FDIC or the National Credit Union Administration (NCUA) which helps protect the money in these savings vehicles.

2. Earns Interest

Both CDs and savings accounts earn interest on the money deposited into them, unlike checking accounts which often offer no interest. While CDs may earn a higher interest rate than traditional savings accounts, a HYSA may offer a competitive interest rate vs. a CD, but it won’t charge you an early-withdrawal penalty.

3. Good Ways to Save Money

You know the saying: Out of sight, out of mind. By putting money into a CD or savings account, you may find it easier to save money and resist the temptation to spend it.

Differences Between a CD and HYSA Savings Account/2>

Of course, there are some key differences between these accounts worth understanding. Knowing these points could help you decide between a high-yield savings account vs. a CD.

1. Accessibility

With a CD, you can’t remove your money until the date of maturity without being penalized. With a high-yield savings account and traditional ones as well, you can usually make either up to six withdrawals a month or unlimited withdrawals. (Check with your financial institution for specifics.)

2. Amount of Interest Earned

Traditional savings accounts generally earn less interest than CDs. However, a high-yield savings account may offer a rate that’s competitive with a CD. Comparison-shop to see what’s offered.

When to Use a CD Instead of an HYSA Savings Account

Here’s some guidance on when you might opt for a CD vs. a savings account.

•   A CD is a good fit if you don’t need to access your money in the near future. If you can agree to leave the money untouched for a number of months or years in a CD, you could earn a higher interest rate vs. a savings account.

For instance, say you got a bonus at work and aren’t quite sure what you want to do with it. Putting it in a CD will keep it safe and earning interest while you decide how you might want to use it.

•   Another scenario in which a CD could be a wise move is if interest rates are expected to fall. Locking in your rate with a CD before that happens could help your money grow.

When to Use an HYSA Savings Account Instead of a CD

A savings account can be a better option if you need your money to be easily accessible in the near future.

•   A savings account can be a good place to store an emergency fund (since you never know when you might need to withdraw some funds) or when saving up for a short-term financial goal.

•   Putting money in a savings account can be a wise move if interest rates are expected to rise. That way, you can enjoy higher earnings as rates climb. That wouldn’t be the case if you locked in to a fixed-rate CD.

How to Open a CD

To open a CD, you can choose a financial institution, and pick the type and term of CD you want. This can mean deciding between a no-penalty or traditional CD. You’ll also determine how often you want to collect your interest payments (say, monthly or when the CD matures, meaning when it reaches the end of its term).

You can likely open a CD in person or online. The process also typically involves sharing your government-issued photo ID, personal details (name, address, Social Security number, and so forth), and other credentials.

The final step will be to fund the CD: That happens by transferring the money online, via a phone transfer, handing over cash if you’re at a branch, or by using a check.

How to Open an HYSA Savings Account

The first step for opening a savings account, including a high-interest savings account, is to compare financial institutions and account options and make your decision.

You may find options depending on minimum opening deposits and minimum balances; interest rates will likely vary between standard and high-yield accounts. You may also find a variety of fees relating to the accounts available, so consider how those might impact your savings.

Next, you will likely have to provide personal information (such as name, address, and SSN), government-issued photo ID, and other details in order to complete the process. This holds true whether you are opening an account in person at a brick-and-mortar location or online.

Lastly, you’ll need to add cash to open the account, whether by handing over money in person or otherwise transferring funds. A typical deposit requirement for a basic savings account might be $25 to $100; you might find some that don’t need any deposit. For a HYSA, you could see minimums ranging from similar levels to thousands of dollars in some cases.

Recommended: Different Types of High-Interest Accounts to Know

The Takeaway

Both certificates of deposit and savings accounts are secure, low-risk places to keep money and earn interest. With a CD, you may earn higher interest than with a standard savings account, but you agree to keep your money on deposit for a specific term or else be penalized for an early withdrawal. With a savings account, your funds are accessible without that kind of penalty, so you can dip in as needed. With a high-yield savings account, you might earn as high an interest rate as a CD. Which financial product is the right choice will depend on your particular needs and goals.

If a savings account seems like a good option to you, SoFi might be the right bank.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Is a certificate of deposit the same as a savings account?

No, a certificate of deposit (CD) is not the same thing as a savings account. Money placed in a CD is not easily accessible like a savings account; you agree not to touch it for a period of time, usually from six months to a few years. CDs are also known as term deposits.

Is a high-yield savings or CD account better?

Whether a high-yield savings account or CD is better for you depends on your unique financial needs. If you have money you don’t need to access anytime soon and can find a higher interest rate for a CD vs. a savings account, then a CD is likely a better fit. If, however, you need to be able to access your money and make withdrawals, a savings account will probably better suit you. And you might find a HYSA that has a rate that’s as good as a CD’s.

Does a certificate of deposit give you better interest than a savings account?

In general, a CD can provide a better interest rate than a traditional savings account, but it pays to research exactly what is being offered. It’s possible that a CD’s interest rate might not be high enough to outweigh the downside of not being able to access your funds the way you can with a savings account. Or you might find that a high-yield savings account offers an interest rate on a par with that of a CD, plus greater accessibility.

Is a certificate of deposit safer than a savings account?

CDs and savings accounts can be equally safe. Most major banks and credit unions are insured by either the FDIC or NCUA, protecting consumers in the very unlikely event of the financial institution

What is the biggest negative of putting your money in a CD?

The biggest negative of a CD is lack of access. You are locking up your money for a set period of time, or term. If you withdraw funds before the CD’s term of deposit is up, you typically face financial penalties.

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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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